Obvious Point

The national government deficit is 14% of GDP. Inflation is 14%. The rate of Real GDP growth is 0%. What is the national debt-GDP ratio doing?*

The national government deficit is 5% of GDP. Inflation is 2%. The rate of Real GDP growth is 1% per year. What is the national debt-GDP ratio doing?**

*Staying flat.
**Increasing by 2 percentage points per year.

This is why looking at the national debt-GDP ratios of the US and UK in the 1970s and 1980s and making conclusions about fiscal conservatism is hopelessly misleading. Doubly so, in fact, due to the close relationship between unemployment and the national government deficit combined with the Phillips Curve. Complaining about “soaring deficits” in the 1980s due to the “soaring” debt-GDP ratios may be outright lying.

I’m looking at you, Noah Smith.

BTW, the first four sentences of the above-linked-to post are utter falsehoods, on the level of claiming North Vietnam lost the Vietnam War.

Author: pithom

An atheist with an interest in the history of the ancient Near East. Author of the Against Jebel al-Lawz Wordpress blog.

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